The Government has confirmed that it plans to increase the minimum pension age at which benefits under registered pension schemes can generally be accessed, without a tax penalty, from age 55 to age 57 from 6 April 2028. In a consultation paper which outlines how the Government intends to implement this, it has set out its plans to introduce a protection regime for members who currently have an “unqualified right” to access their benefits under a registered pension scheme before age 57 and for members in certain high risk occupations.
For all other members, the age at which they can access their benefits without paying an unauthorised payments charge will increase from April 2028 and schemes need to decide when and how to inform affected members about this.
- The normal minimum pension age (NMPA) will increase from age 55 to 57 from 6 April 2028 in line with increases to the state pension age.
- Members who currently have an “unqualified right” to access their benefits under a registered pension scheme before age 57 and members of the armed forces, firefighters or police pension schemes will be permitted to retain their existing minimum pension age.
- Trustees and providers must decide when and how to inform affected members to ensure they have sufficient notice and can adjust any plans they may have to retire or access their benefits accordingly.
In 2014, as part of the consultation on Freedom and Choice in Pensions, the coalition government consulted on raising the NMPA to age 57 in 2028 to coincide with the rise of state pension age to 67. In response to the consultation, almost half of the respondents agreed with the proposal. Subsequently, the coalition government announced that the NMPA would rise to 57 in 2028 and that it would seek to link future rises to increases in state pension age.
The NMPA was first introduced on 6 April 2006 as part of the new pensions tax regime. Before April 2006 certain individuals who were members of approved occupational or personal pension schemes, or who had approved retirement annuity contracts, had a protected pension age of less than 50. Retaining this right was dependent on an individual having a prescribed occupation as set out in regulations.
In 2010 the NMPA was increased from age 50 to 55. Protections were applied to members of occupational pension schemes who before April 2006 had an unqualified right to take benefits before age 55 where certain conditions were satisfied.
In its recent consultation, the Government has reconfirmed its plans to increase the NMPA from age 55 to 57 from 6 April 2028 and it is seeking views on its proposed implementation and protection framework, which is summarised below.
Protection of existing scheme rights
The Government is planning to introduce a protection regime which would mean that an individual member of any registered pension scheme (occupational or non-occupational) who has an unqualified right (e.g. without needing the consent of their employer or the trustees) under the scheme rules at the date of the consultation to take pension benefits at an age below 57 will be protected from the increase in 2028.
A member’s protected pension age will be the age from which they currently have the right to take their benefits.
The protected pension age will:
- be specific to an individual as a member of a particular scheme. Protection will not apply to other schemes where there was no existing right held, so an individual could have a protected pension age in one scheme where they have a right to take pension benefits at an age below 57, but for schemes where no such right exists the new NMPA of 57 will apply from 2028.
- apply to all the member’s benefits under the relevant scheme, not just those benefits built up before April 2028.
Individuals with an existing protected pension age under the 2006 or 2010 regimes will see no change in their current protections.
In recognition of the special position of members of the armed forces, police and fire services, the Government is proposing that, where members of the associated pension schemes do not already have a protected pension age, the increase in the NMPA will not apply to them.
Individuals without a protected pension age
Individuals who do not have a protected pension age who access their pension benefits before age 57 after 5 April 2028 would be subject to unauthorised payments tax charges.
Application for protection
There will be no need for individuals or schemes to apply for a protected pension age. This is in line with the approach taken under the existing protected pension age regimes.
The Government is not proposing to make any changes to the current pension tax rules on ill-health as part of this NMPA increase.
Unlike the protection regime introduced in 2006, where individuals are entitled to a protected pension age in relation to the increase in NMPA from 2028, they will be able to draw benefits under their scheme even if they are still working.
In addition, currently, if an individual wants to use their protected pension age, then all their benefits under the scheme must be taken (crystallised) on the same date. However, considering the pension flexibilities introduced in 2015, the Government proposes that this requirement will not be a condition of the 2028 protected pension age regime. This would mean, for example, that an individual with a defined contribution pension with a protected pension age of 55 would be able to allocate some of their pension to a drawdown fund, and at a later date use the remainder to purchase an annuity, without losing their protected pension age.
The government proposes that individuals should retain their protection as part of a transfer where they become a member of another pension scheme as a result of a block transfer.
The government’s position remains that it is, in principle, appropriate for the NMPA to remain around 10 years under state pension age. However, the government does not intend to link NMPA rises automatically to state pension age increases at this time.
Communicating with members
Trustees and pension providers need to consider the impact of the proposed change to the NMPA on the members of their scheme and determine whether some or all of the members of their scheme will benefit from a protected pension age.
Where a member’s NMPA will change from April 2028, trustees and providers should consider when and how to inform them to ensure that affected members have sufficient notice of the change and can adjust any plans they may have to retire or access their benefits accordingly.
Trustees should also consider how to update their communications to members who request a transfer out of their scheme to alert them to the fact that they could lose their entitlement to a protected pension age (from April 2028) as a result of taking a transfer.